American Resources(AREC) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Interim Consolidated Financial Statements The company reported a significant revenue increase to $34.8 million for the nine months ended September 30, 2022, alongside a reduced net loss and a decline in cash and total assets Consolidated Condensed Balance Sheets As of September 30, 2022, total assets decreased to $37.3 million while total liabilities increased, resulting in a larger stockholders' deficit of $9.1 million Balance Sheet Highlights | Balance Sheet Highlights | Sep 30, 2022 (Unaudited) | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash | $3,769,465 | $11,492,702 | | Total Current Assets | $11,224,873 | $15,292,943 | | Total Assets | $37,313,393 | $42,867,702 | | Liabilities & Equity | | | | Total Current Liabilities | $20,691,222 | $16,530,206 | | Total Liabilities | $46,386,098 | $45,213,110 | | Accumulated Deficit | $(176,196,598) | $(165,793,571) | | Total Stockholders' Deficit | $(9,072,705) | $(2,345,408) | Consolidated Condensed Statements of Operations Revenues significantly increased to $34.8 million for the nine months ended September 30, 2022, with the net loss improving to $10.5 million from the prior year Statement of Operations (Nine Months) | Statement of Operations | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Total Revenue | $34,789,566 | $3,217,781 | | Total Operating Expenses | $(47,537,148) | $(22,619,096) | | Net Loss from Operations | $(12,747,582) | $(19,401,315) | | Net Income (Loss) | $(10,466,517) | $(21,953,551) | | Net loss per common share | $(0.16) | $(0.41) | Statement of Operations (Three Months) | Statement of Operations | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Total Revenue | $9,509,738 | $2,813,923 | | Net Loss from Operations | $(4,632,147) | $(7,842,882) | | Net Income (Loss) | $(5,226,840) | $(8,913,521) | | Net loss per common share | $(0.08) | $(0.15) | Consolidated Condensed Statements of Changes in Stockholders' Equity (Deficit) The stockholders' deficit expanded to $9.1 million by September 30, 2022, primarily due to a $10.4 million net loss, partially offset by capital raises - The total stockholders' deficit grew to $(9,072,705) as of September 30, 2022, from $(2,345,408) at December 31, 2021[17] - The increase in the accumulated deficit was primarily due to a net loss of $5,226,840 for the third quarter of 2022 and $10,403,028 for the first nine months of 2022 attributable to shareholders[12][17] Consolidated Condensed Statements of Cash Flows Net cash used in operations was $11.9 million for the nine months ended September 30, 2022, leading to an overall $7.7 million decrease in cash and restricted cash Cash Flow Summary | Cash Flow Summary | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash used in operations | $(11,881,575) | $(17,441,221) | | Net cash from investing activities | $3,477,474 | $(5,075,701) | | Net cash from financing activities | $672,422 | $31,446,016 | | Increase(decrease) in cash | $(7,731,677) | $8,929,094 | | Cash, end of period | $4,856,436 | $20,130,297 | Notes to Unaudited Consolidated Condensed Financial Statements The notes detail accounting policies, significant related-party transactions, an increased Asset Retirement Obligation, and various contingencies - The company owns 92.5% of American Rare Earth, LLC, which is treated as a variable interest entity and consolidated in the financial statements[21] Asset Retirement Obligation (ARO) | Asset Retirement Obligation (ARO) | Amount | | :--- | :--- | | Balance at Dec 31, 2021 | $18,951,587 | | Accretion (9 months 2022) | $987,744 | | Balance at Sep 30, 2022 | $19,939,332 | - The company has significant related-party transactions, including a services agreement with Land Betterment Corporation, controlled by company management, which incurred $4.7 million in charges for the first nine months of 2022[44][45] - Contingencies include claims from the Kentucky Energy Cabinet totaling $1,430,997 and the Mine Health Safety Administration totaling $754,398[60] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes revenue growth to increased coal production, while ongoing net losses and liquidity challenges persist due to high costs and supply chain constraints - The company's business focuses on acquiring, rehabilitating, and operating natural resource assets, primarily metallurgical coal for steel making, through subsidiaries like McCoy Elkhorn and Perry County Resources[68][69] - The primary driver for increased revenue was higher coal production following the recommencement of mining operations at the E4-2 mine on March 29, 2021, post-COVID-19 pandemic idling[111][93] - As of September 30, 2022, available cash was $3.8 million, with future liquidity expected to be funded by cash on hand, borrowings, and common stock issuances[115] - The COVID-19 pandemic led to muted demand for infrastructure and steel products, impacting sales and gross margins, with operations idled from January to December 2020 and persistent supply chain constraints[118] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, American Resources Corporation is exempt from providing disclosures under this item - The company, as a smaller reporting entity, is not required to provide disclosures under this item[121] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of September 30, 2022, due to insufficient staffing and untimely reconciliations - Management concluded that the company's disclosure controls and procedures were not effective as of September 30, 2022[123] - This ineffectiveness stemmed from an insufficient number of staff in accounting and reporting functions and a lack of timely reconciliations[123] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reports no current litigation expected to materially adversely affect its financial condition or operations - The company reports it is not involved in any litigation expected to have a material adverse effect on its financial condition or operations[126] Item 1A. Risk Factors This section is not applicable for the current quarterly report - Not applicable[126] Item 2. Unregistered Sale of Equity Securities and Use of Proceeds The company sold 425,000 restricted common shares on March 17, 2021, generating $1,275,000 in gross proceeds for general business purposes - On March 17, 2021, the company sold 425,000 restricted common shares, raising $1,275,000 in gross proceeds[126] Item 3. Defaults upon Senior Securities The company reported no defaults on senior securities - None[127] Item 4. Mine Safety Disclosures Mine safety disclosures, including violations and regulatory matters, are provided in Exhibit 95.1 of the quarterly report - Mine safety disclosures required by the Dodd-Frank Act are included in Exhibit 95.1[127] Item 5. Other Information No other information was reported for this item - None[127] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents, agreements, and officer certifications - Lists all exhibits filed with the report, including CEO/CFO certifications (31.1, 31.2, 32.1, 32.2) and Mine Safety Disclosure (95.1)[128][131][132][133][134][135]